European Central Bankers Fear U.S. Policy Shifts Could Rattle Markets
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European central bankers left the Federal Reserve's annual Jackson Hole gathering increasingly concerned that unconventional moves by the Trump administration could strain international financial cooperation and create fresh market volatility, Reuters reported Sunday. Fed officials sought to reassure overseas counterparts that the central bank would honor its commitments, but they could not promise that the administration would observe the informal coordination practices that have long helped stabilize currencies and global funding markets. For investors, the dispute raises the risk of abrupt moves in currencies, Treasury yields, and other financial assets. European officials were particularly troubled by the Treasury Department's recent intervention to support the Japanese yen, which involved selling euros without notifying European authorities in advance, contrary to customary practice. Treasury Secretary Scott Bessent said the yen operation was intended to counter disorderly trading and support financial stability, while a U.S. official said it wasn't aimed at Europe. European policymakers also expressed concern about plans to expand Treasury buybacks of longer-dated government debt, which could reinforce perceptions that the administration is trying to influence borrowing costs. Treasury officials maintain the buybacks are designed to improve liquidity, not to cap interest rates. The deeper worry is that political pressure could eventually reach the Federal Reserve's dollar swap lines with major foreign central banks, though officials said there is currently no indication those facilities are threatened. Fed Chair Kevin Warsh has worked to maintain relationships with foreign officials, and his outreach generally received a favorable response. Still, the message from Jackson Hole was clear: European officials remain confident in the Fed's institutional commitments, but increasingly uncertain about what Washington may do next.
